When desalination contracts turn sour; an opportunity for arbitration?

I recently completed my first arbitration. The process was quite an eye-opener. I have to admit I was somewhat sceptical at the outset that this procedure represented good value for money. In addition to the two teams of lawyers and experts, the arbitration process adds yet another team. In some disputes, there may be a sole arbiter. In such a case, this individual takes the place of the judge, so probably does not result in a cost addition. For the case I was involved in, a three person arbitration panel was appointed. Usually, this three person panel comprises three lawyers, hence one team of lawyers effectively marks the homework of two other teams of lawyers. It sounds expensive.

However, the cost equation is not as simple as it first appears. I have been involved in many court cases that become extended as each side continues to argue its case with multiple rounds of witness statements and expert reports. In contrast, an arbitration process draws a line in the sand, encouraging each team to make its best case before the balance of arguments is assessed by the arbitration panel. The potential to extend the timescale is therefore eliminated which saves a considerable fee burden.

Furthermore, although the arbitration process has a considerable timescale of its own, perhaps the best part of a year, at least the process is defined.

However, the most important advantage is psychological and I think the arbitration process is well suited to achieve a fair and balanced outcome. Law firms are paid to represent their client’s best interest and so are naturally pitted against each other in the dispute. They hire experts to provide a technical input to the arguments. These experts are independent and ideally would express the same opinion and answer any question in a similar way to either set of lawyers. The skill of the lawyer is to address questions to their expert in a way that the answer is most helpful to their case.

So far so good. Unfortunately, in the real world, experts fall under the spell of the so-called ‘Stockholm Syndrome’ in which a hostage eventually forms a bond with the hostage taker! It is natural and unavoidable that experts start to identify with their particular client’s law firm and inevitably assist their lawyers with helpful suggestions.

When it comes to the court proceedings, the temporary relationship with the law firm starts to be moved to the back burner and the experts then begin to bond once again with their industry colleagues, ie the experts from the other side. Naturally they have a long-standing relationship with these ‘adversaries’ and soon find themselves seeking common ground in most of the arguments. But some level of loyalty remains to the law firm that hired them. The judge or sole arbiter makes his judgment on some finely balanced residue of disagreements between the experts. The majority of the dispute simply disappears.

I would expect that anyone who has been an expert in a conventional court case will recognise my characterization of the process.

How is arbitration different? Where does the expert fit in? As I mentioned above, the arbitration panel is normally composed of three lawyers deciding between the arguments of the two law firms. However, in the case that I was involved in, I found myself appointed as a technical expert amongst the lawyers. Though appointed by one of the two sides, I was not allowed to discuss the project with them after appointment and indeed was not allowed to contact them in any way. The arbitration panel functions by only allowing communication between panel members, with any request for information coming in the form of a formal information request from the panel president.

The consequence is that any ‘bonding’ takes place only within the panel with the two parties held strictly at arms length. The psychological difference is profound. Any ‘Stockholm Syndrome’ feelings are limited to the fellow panel members! Such a process has to be a recipe for fairness. Or at the very least, the arbitration panel can come to a fair outcome regarding what it was actually told in the process. Of course, there could be undisclosed matters, but the panel has a strictly defined remit of considering only the submitted evidence and is not allowed to indulge in 2nd guesses. Above all, the panel members are not participants in developing arguments in the dispute, but sit in judgment of the case put forward by each side. Or as my fellow panellists told me, ‘You are the referee; don’t touch the ball!’. Arbitration appears to be intrinsically fairer than the normal adversarial process since there is no potential for experts to develop a relationship with one of the warring parties. Independence is assured.

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